Purchasing And Supply Management 16Th Edition By P. Fraser Johnson – Test Bank

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Purchasing and Supply Management, 16e (Johnson)

Chapter 5 Make or Buy, Insourcing and Outsourcing

1) Supply managers believe they can add the most value to the outsourcing decision by:

A) providing a comprehensive, competitive process.

B) advising the outsourcing team on relevant contractual terms and conditions.

C) reviewing the analysis conducted by the outsourcing team.

D) being available if the internal users want their assistance.

E) managing the contract once the decision has been implemented.

Answer: A

Difficulty: 2 Medium

Topic: Supply’s role in insourcing and outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

2) In a service triad:

A) the service supplier and customers are the coproducer of the service, excluding the buyer

from the service encounter.

B) the buyer is dependent on the supplier for the satisfactory fulfillment of customers’ service

demands.

C) the buyer is dependent on the supplier for customer service innovation and organizational

learning.

D) the service supplier and customers are the coproducer of the service, excluding the buyer

from the service encounter, and the buyer is dependent on the supplier for the satisfactory

fulfillment of customers’ service demands.

E) the service supplier and customers are the coproducer of the service, excluding the buyer from

the service encounter; the buyer is dependent on the supplier for the satisfactory fulfillment of

customers’ service demands; and the buyer is dependent on the supplier for customer service

innovation and organizational learning.

Answer: E

Difficulty: 3 Hard

Topic: Outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

1

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.3) Outsourcing:

A) occurs primarily in large manufacturing firms in the private sector, but is rarely practiced in

public purchasing.

B) may reduce operating costs, improve focus on core competencies, and gain access to world-

class capabilities.

C) decisions are based on cost-benefit analysis.

D) usually results in increased hiring to attain expertise that the organization does not already

possess.

E) is a low risk initiative because the firm can always revert back to performing the function in-

house.

Answer: B

Difficulty: 2 Medium

Topic: Outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

4) In an outsourcing decision, developing and negotiating the outsourcing contract:

A) is not an area where supply managers believe they can add value.

B) is the biggest area where supply managers can affect organizational strategy.

C) is less important than ensuring prompt payment to suppliers.

D) is of less strategic importance than identifying opportunities for outsourcing.

E) is best left to the function most directly affected by the outsourcing decision.

Answer: D

Difficulty: 3 Hard

Topic: Outsourcing

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

2

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.5) An organization may decide to continue to produce a good or service in-house rather than

outsource:

A) to control the quality of customer service.

B) to reduce risk.

C) because of a lack of technical expertise in-house.

D) to control the quality of customer service and to reduce risk.

E) to control the quality of customer service, to reduce risk and because of a lack of technical

expertise in-house.

Answer: D

Difficulty: 1 Easy

Topic: Make or buy

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

6) Outsourcing of services is:

A) decreasing in volume, but increasing in scope.

B) decreasing in volume and scope.

C) increasing in volume and scope.

D) increasing in volume, but decreasing in scope.

E) about the same in volume and scope over the last decade.

Answer: C

Difficulty: 2 Medium

Topic: Outsourcing

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

7) Concerns about outsourcing include:

A) supply’s ability to provide the required inputs at the right quality and price.

B) layoffs, exposure to supplier’s risks, and loss of control.

C) transitioning from supplier’s operations to internal operations.

D) losing long-term buyer-supplier relationships and cost advantages.

E) loss of a lean enterprise as the supply base grows.

Answer: B

Difficulty: 2 Medium

Topic: Outsourcing

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

3

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.8) The type(s) of procurement outsourcing contracts include:

A) procure-to-pay (P2P).

B) source-to-contract (S2C).

C) source-to-pay (S2P).

D) procure-to-pay (P2P) and source-to-contract (S2C).

E) procure-to-pay (P2P), source-to-contract (S2C) and source-to-pay (S2P).

Answer: E

Difficulty: 1 Easy

Topic: Outsourcing supply and logistics

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

9) When a team has decided that a task or function currently performed by company employees

is a core competency, the team will probably recommend:

A) outsourcing.

B) insourcing.

C) offshoring.

D) continuing to make.

E) continuing to buy.

Answer: D

Difficulty: 2 Medium

Topic: Make or buy

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

10) Deciding what represents a core competency in an organization is:

A) often a fairly complex decision and a function of many factors.

B) always the same for companies in the same industry.

C) a fairly easy decision once organizational goals and objectives are known.

D) a decision best left to the organization’s Board of Directors.

E) a decision best left to the chief executive officer (CEO).

Answer: A

Difficulty: 2 Medium

Topic: Outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

4

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.11) The growth in outsourcing in the logistics area is attributed to:

A) increased transportation regulations.

B) enhanced logistics technologies that provide real-time data.

C) truck driver shortages.

D) increased transportation regulations and enhanced logistics technologies that provide real-

time data.

E) increased transportation regulations, enhanced logistics technologies that provide real-time

data and truck driver shortages.

Answer: B

Difficulty: 2 Medium

Topic: Outsourcing supply and logistics

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

12) The decision to make or buy a good or service is:

A) a one-time decision never to be reconsidered.

B) a decision of strategic importance that deserves careful evaluation.

C) primarily an operational decision.

D) the same as deciding to insource or outsource.

E) typically made by the chief supply officer and his or her executive team.

Answer: B

Difficulty: 2 Medium

Topic: Make or buy

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

5

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.13) A procurement outsourcing contract that covers approval workflow, material acquisition,

purchase order, expediting, material and invoice receipt, invoice payment, financial performance,

compliance management, policies and procedures, and performance and results reporting is

called:

A) procure-to-contract (P2P).

B) source-to-contract (S2C).

C) procure-to-pay (P2P).

D) source-to-pay (S2P).

E) third party logistics (3PL).

Answer: C

Difficulty: 2 Medium

Topic: Outsourcing supply and logistics

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

14) Insourcing should be considered when:

A) assurance of supply is a problem.

B) the supplier has developed a unique process to produce the product or service.

C) there is an opportunity to reduce costs significantly.

D) assurance of supply is a problem and there is an opportunity to reduce costs significantly.

E) assurance of supply is a problem, the supplier has developed a unique process to produce the

product or service and there is an opportunity to reduce costs significantly.

Answer: D

Difficulty: 2 Medium

Topic: Insourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

6

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.15) Subcontracts can only occur:

A) in government procurement.

B) if there is a prime contractor bidding out part of a job.

C) when a lead contractor is behind schedule.

D) if substitution is required after the specification has been set.

E) when purchasing a good, not a service.

Answer: B

Difficulty: 2 Medium

Topic: Subcontracting

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

16) Some of the reasons an organization may decide to buy rather than make are: greater supply

assurance, stringent quality requirements, and very small quantity requirements.

Answer: FALSE

Difficulty: 1 Easy

Topic: Make or buy

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

17) Some of the reasons an organization may decide to make rather than buy are: greater supply

assurance, stringent quality requirements, and very small quantity requirements.

Answer: TRUE

Difficulty: 1 Easy

Topic: Make or buy

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

7

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.18) Subcontracts are a special class of the make or buy, used exclusively in construction

procurement.

Answer: FALSE

Difficulty: 2 Medium

Topic: Subcontracting

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

19) A recent North American trend is to insource a number of services that were traditionally

outsourced.

Answer: FALSE

Difficulty: 1 Easy

Topic: Insourcing and outsourcing

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

20) Subcontracts are useful when the work is difficult to define, has a long time horizon, and is

relatively expensive.

Answer: TRUE

Difficulty: 2 Medium

Topic: Subcontracting

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

21) The chief executive officer (CEO) identifies opportunities for insourcing and outsourcing

and supply is responsible for aiding in the selection of sources.

Answer: FALSE

Difficulty: 2 Medium

Topic: Insourcing and outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

8

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.22) Insourcing and outsourcing occur when a company reverses previous make or buy decisions.

Answer: TRUE

Difficulty: 2 Medium

Topic: Insourcing and outsourcing

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

23) Currently, organizations tend toward buying rather than making.

Answer: TRUE

Difficulty: 1 Easy

Topic: Make or buy

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

24) The procurement of indirect or noncore spend is more likely to be outsourced than

procurement of direct or core spend.

Answer: TRUE

Difficulty: 2 Medium

Topic: Outsourcing supply and logistics

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

25) Outsourcing is prevalent in both the private and public sectors, but primarily for services.

Answer: FALSE

Difficulty: 2 Medium

Topic: Outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

9

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.26) Growth in outsourcing in the logistics area can be attributed, in part, to growing deregulation

of transportation companies.

Answer: TRUE

Difficulty: 1 Easy

Topic: Outsourcing supply and logistics

Bloom’s: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

27) The gray zone in make or buy refers to the range of options between 100 percent make to

100 percent buy.

Answer: TRUE

Difficulty: 2 Medium

Topic: The gray zone in make or buy

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

28) The increase in outsourcing has resulted in an increase in the percentage of revenue paid out

to suppliers.

Answer: TRUE

Difficulty: 1 Easy

Topic: Outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

29) Service triads favor contracts that control how the service is delivered.

Answer: FALSE

Difficulty: 2 Medium

Topic: Outsourcing

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

10

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.30) It is not possible for some activities in a function to be core competencies that are made or

insourced, and for some activities in the same function to be noncore and bought or outsourced.

Answer: FALSE

Difficulty: 2 Medium

Topic: Make or buy

Bloom’s: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

Gradable: automatic

11

Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior

written consent of McGraw-Hill Education.